By the time this article is published, President Trump will have been sworn in and he and House Speaker Paul Ryan will be hard at work in finalizing their tax reform proposal. It is now mid-January and the most up-to-date information on the basics of the Republican overhaul of the tax code are found in the Blueprint published by the GOP’s House Ways and Means Tax Reform Task Force. Before exploring what tax reform will mean, let’s look at where tax planning starts under current law.

The Current Rates
Income from professional services is taxed as regular income and according to IRS statistics, most medical professionals pay tax at one of the top four brackets: 28% ($151,900 to $231,450), 33% ($231,450 to $413,350), 35% ($413,350 to $466,950) or 39.6% (over $466,950). However, that is not the end of the tax calculation. Alabama takes its “fair share” at 5% and additional Medicare taxes of 0.9% and 1.45% are imposed on wages received over the Social Security limit (for self-employed individuals, this total is 3.8%). So, for physicians and many other professionals, this combination often results in an effective tax rate of just under 50%.